First Advance Estimates Of GDP: What Could 7.3% Economic Growth In FY24 Mean For India?

The first advanced estimates of India's economy are out. The National Statistical Office (NSO) expects India's GDP growth at 7.3% in FY24, which is well above the provisional growth rate of 7.2% during the last financial year. If going by the estimates, India is expected to grow better in FY24 than compared to FY23. This is also higher than RBI's projection for real GDP growth in the current financial year. However, brokerages estimate the country's economy to grow even lower than or at 7%.

As per NSO's statement, real GDP at constant (2011-12) prices for FY24 is estimated to attain a level of Rs 171.79 lakh crore, as against the Provisional Estimate of GDP for the year 2022-23 of Rs 160.06 lakh crore released on May 31, 2023. The growth in real GDP during 2023-24 is estimated at 7.3 per cent as compared to 7.2 per cent in 2022-23.

This is also a higher projection than RBI's estimates of real GDP growth at 7% for FY24. RBI expects GDP growth to be at 6.5% in Q3 and 6% in Q4 of the current fiscal. Meanwhile, real GDP growth for Q1 2024-25 is projected at 6.7%; Q2 at 6.5%; and Q3 at 6.4% by RBI.

However, NSO expects gross value-added (GVA) product growth to moderate to 6.9% in FY24 versus 7% in FY23.

Nonetheless, NSE said that "All the economic sectors have fared well by witnessing more than 6%, except for Agriculture and Allied sector, for which the estimated growth is 1.8%." While construction sector has been estimated to have double-digit growth of 10.7%.

According to JM Financial, on a sectoral basis, the most notable moderation is expected in the industry (6.7% in H2 vs 9.3% in H1) as growth in utilities (10.3% in H2 vs 6.4% in H1) did not compensate for the sluggishness in manufacturing (3.9% in H2 vs 9.3% in H1). Mining and construction activities are expected to remain robust in the second half as well (Ex 1). While moderation in Agricultural growth is expected to be steeper (1.4% in H2 vs 2.4% in H1). Service performance (7.5% in H2 vs 8% in H1) is relatively robust, led by marginal moderation in the public sector as well as the finance and Real estate activities while trade, hotel etc. moderates slightly.

However, JM also stated that going by the NSO's estimates, private consumption is likely to weaken in FY24 to 4.4% from 7.5% in FY23. However, this implies that the second half would see marginal moderation in private consumption vs a significant one in government consumption. Even though imports undergo slight moderation in H2 (13% in H2 vs 14% in H1), the overall trade balance is expected to improve as exports turn positive from de-growth in H1. Lately, Rural agri. wages have been growing in real terms, even a market survey by Nielson indicates a consistent uptick in rural consumption.

In its research note, JM said, "It is pertinent to note that the first advance estimates form the base for budget exercise, but is subject to significant revision. NSO's lower nominal GDP growth of 8.9% vs budgeted 10.5% would add constraints to meeting the government's fiscal deficit (FD) target of 5.9% of GDP. Current
Nominal GDP would imply FD at 6% or curtailment of spending by Rs 370bn as per our assessment."

However, the brokerage also said that considering the government's comfortable fiscal deficit position in the first nine months (Apr-Nov'23) at 51% of FY24BE makes it that much easier to meet the target. Sluggishness is also reflected in Gross National Income, with a growth of 7.8% (Rs 208,071) vs 15% in FY23, in USD terms GNI comes to $2506.

"Although slowing consumption is a cause of concern, however, early signs of pick up in rural consumption, improving trade balance should cushion the economy going forward. We build in more realistic GDP growth expectation of 6.7% to 6.9% in the upcoming fiscal," JM's note lastly said.

Moreover, Suvodeep Rakshit, Senior Economist At Kotak Institutional Equities along with other economists Upasna Bhardwaj and Anurag Balajee in their research report said, "We revise up our FY2024E real GDP growth to 7% (6.8% earlier). While high-frequency activity indicators remain resilient, headwinds to growth remain mainly from (1) some fatigue in urban demand, which could be exacerbated by tightening lending regulations, while excess savings wane, fading momentum in formal employment and softening wage growth, (2) uncertain rural demand, (3) lagged impact of cumulative rate hikes and financial tightening and (4) moderation in global growth over the next few quarters."

Kotak's economists have maintained their FY2025E real GDP growth at 6.3%, assuming some global slowdown in 1HFY25, followed by recovery in global and domestic demand conditions. They added, "FY2025 growth will also be shaped by some easing in financial conditions, monsoon outlook and government's capex (albeit at a much slower pace).

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